Interesting Group of Posts at NRO on Public Employee Compensation

Ezra Klein and a variety of other thoughtful liberal bloggers have been pointing to an Economic Policy Institute analysis that they claim demonstrates that Wisconsin’s public employees, even after adjusting for benefits and hours worked, face a “compensation penalty of 5% for choosing to work in the public sector.” Unfortunately, when you get under the hood, the study shows no such thing.

Klein links to an executive summary to support his claim, but reading the actual paper by Jeffrey H. Keefe is instructive.

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Keefe is considering almost any full-time employee in Wisconsin with the identical years of education, race, gender, etc., as providing labor of equivalent market value, whether they are theoretical physicists, police officers, retail-store managers, accountants, salespeople, or anything else. Whether they work in Milwaukee, Madison, or a small town with a much lower cost of living. Whether their job is high-stress or low-stress. Whether they face a constant, realistic risk of being laid off any given year, or close to lifetime employment. Whether their years of education for the job are in molecular biology or the sociology of dance. Whether they do unpredictable shift work in a factory, or 9–5 desk work in an office with the option to telecommute one day per week.

Keefe claims — without adjusting for an all-but-infinite number of such relevant potential differences between the weight-average public-sector worker and the weight-average private-sector worker — that his analysis is precise enough to ascribe a 5 percent difference in compensation to a public-sector-compensation “penalty.”

As anybody who has ever met a high-school vice principal can attest, not all masters’ degrees are created equal. (The study controls for lots of things, like sex and ethnicity, but not the ones I’d be interested in, like I.Q. or standardized test scores. It also doesn’t control for such niggling factors as whether those government workers work, which strikes me as something that would be useful to know.)

This is basically what I was trying to explain in my long post a few days ago. Salaries are determined, first and foremost, by the public’s estimation of your worth, not by some cosmic judge who decides who “deserves” more (and a college degree is certainly no magic charm either). That’s why popular actors and professional athletes (who often drop out of school to pursue their careers) earn millions: because we’ve indicated that we’re willing to pay them that much. That may seem outrageous to you, but the alternative is to create an all-powerful government body to calculate the salaries of every single worker in America. I’m sure most reasonable people would agree that such a plan would place an unacceptable amount of power in the hands of a few bureaucrats. Again, if you want to be paid more, you need to demonstrate to the public that you’ve earned it.

I don’t want to put words in Jim’s mouth, here’s what I consider a slightly more Manzian take: the problem with public sector compensation is that there is often very little clarity in terms of whether or not taxpayers are getting a good deal. One of the big reasons right-wingers are so hot for merit pay, based on my limited experience, is that they’re generally pretty comfortable with the idea of at least some public workers making much more than they are making now, provided other workers who’d be willing to work for less because they’re not likely to attract better offers are either paid less or fired.

Yes, exactly. As I said a few days ago, I’m definitely willing to pay the Mr. W’s of the world much more. But not everyone in the public sector is a Mr. W. As a resident of Northern Virginia, I’ve heard plenty of gripes about slack-jawed federal workers who spend their days surfing the internet instead of doing their jobs. As a matter of fact, a close friend of mine (who works in the federal government) wrote a play about one manager’s struggle to fire an incompetent government employee, and it’s been a hit at the Capital Fringe Festival for the past few years.

Moreover, as my co-author pointed out in his post on the bureaucratic redundancy at the NOAA, there’s quite a bit of dead weight in our federal and state governments, and that’s going to reduce the public’s perception of a public sector worker’s market value. I think we could afford to pay public sector workers more if our governments were leaner and meaner. You have a choice: Pay five guys $40,000 to do the exact same thing five times over, or pay one especially competent guy six figures to do it once. I know which option I would choose.